Google Analytics

Saturday, November 3

3rd Nov - Weekender: Economics & Banking

Previously on MoreLiver’s:

Follow ‘MoreLiver’ on Twitter or Facebook

Panic Spreading Across Nations Outranks Trade: Cutting ResearchBB
The large losses of leveraged financial institutions and associated decline in credit were not directly responsible for the Great Recession. Rather, a deterioration of macroeconomic fundamentals, such as a negative credit shock, contributed to a panic by generating conditions that made self-fulfilling beliefs, which otherwise would not have existed, feasible.

What’s the use of economics?
The economic crisis has thrown the inadequacies of macroeconomics into stark relief. This column argues that the narrow conception of the macroeconomy as a system in equilibrium is problematic. Economists should abandon entrenched theories and understand the macroeconomy as self-organising. It offers detailed suggestions on what alternative ideas economists can teach their future students that better reflect empirical evidence.

Admit economic ignoranceReuters
Here are six crucial questions which professionals should stop pretending they can answer

Global Trade Imbalances MatterCFA Institute’s Blog
Containing the damage of the inexorable rebalancing of current large trade deficits requires global cooperation in devising a credible fiscal plan to reduce deficits in an orderly fashion

(audio) BizDaily: Inflation: past, present and future?BBC (mp3)
How rising prices have defined out history and could shape our future. Armand D'Angour, Professor of Classics at Oxford University explains how inflation played a key role in the demise of the Roman Empire. Justin Rowlatt talks to economist Steve Hanke about Iran's inflation problem. Plus former government advisor to George W. Bush Pippa Malmgren tells us why she thinks we need to start preparing for rising prices now.

Crisis Spotting, Czech style alphaville / FT
Forty years of crises across 36 EU and OECD countries. They found that while house and share price falls offer a ‘late” early warning of the onset of a crisis, the best leading crisis indicator is “growth in domestic credit to the private sector”.

Euro area labour markets and the crisis ECB (pdf)

Testing the Economic Value of Asset Return PredictabilityFED (pdf)

Self-Fulfilling Credit CyclesFED (pdf)

Macroeconomic Effects of Federal Reserve Forward GuidanceFED

Memo to Central Banks: You’re debasing more than our currencyJohn Mauldin / The Big Picture
SocGen’s client note.

Shifting the inflation targetButtonwood’s / The Economist
Pradhan of Morgan Stanley has an interesting note (privately circulated, so no link) on the current dilemmas facing central banks.

The Fed’s Response to the Financial Crisis: What It Did and What It Should Have DoneFED (pdf)

Inflation, QE and forcing the banks to lendButtonwood / The Economist

A Note On the Effects of the Higher National Debt On Economic GrowthSIEPR (pdf)
Michael Boskin: Failing to rapidly begin bending the long-run debt-GDP curve down risks a growth disaster, whose severity could be much worse even than the recent deep recession and tragically anemic recovery. Left unchecked, it eventually risks a lost generation of growth, a long-run growth depression.

Fiscal Closing Time?Project Syndicate
Economists may not be able to pinpoint the precise economic impact of fiscal retrenchment. But, by improving their methods and collecting new data, they can tell us with much greater accuracy than ever before when and how consolidation should be carried out.

Gauging the multiplier: Lessons from
The size of the fiscal policy multiplier – and thus the impact of austerity on GDP – has been a contentious issue since the crisis started. The IMF recently revived the debate by suggesting that the multiplier is much higher than previously thought in the current policy environment. This column discusses independent empirical research that confirms the IMF’s view – the authors’ estimate of the multiplier is in the range of 1.6.

"Cyclically-adjusted deficit" is not a macroeconomic conceptWorthwhile

Seeing Our Way Through The Crisis: Why We Need Fiscal TransparencyiMFdirect

Three banks lose systemic bad boy shirtalphaville / FT

Regulatory reforms – incentives matter (can we make bankers more like pilots?)BIS (pdf)
Wayne Byres, Secretary General of the Basel Committee on Banking Supervision to the Bank of Portugal conference on Global Risk Management: Governance and Control Lisbon, 24-Oct 2012

The Perils of Feeding a Bloated IndustryNYT
It is worth remembering that the credit crisis and ensuing economic downturn followed a spectacular expansion in the financial business, compared with other industries

The Growth of Modern FinanceHBS (pdf)
The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was itself fueled by the development of non-bank credit intermediation (or “shadow banking”). We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial. 

Haldane on why King Kong & Godzilla, like big banks, are inefficient structuresalphaville / FT
There is no longer evidence of economies of scale at bank sizes above $100 billion. If anything, there is now evidence of diseconomies which rise with bank size, consistent with big banks becoming “too big to manage”. …Subtracting this subsidy, removing the state crutch, would suggest a dramatically lower socially-optimal banking scale.

Erkki Liikanen: On the structural reforms of banking after the crisisBIS (pdf)
Speech by Mr Erkki Liikanen, Governor of the Bank of Finland and Chairman of the High-level Expert Group on reforming the structure of the EU banking sector, at the Centre for European Policy Studies, Brussels, 23 October 2012.

Too Big To HandleSimon Johnson / Project Syndicate
In the discussion of whether the largest US financial institutions have become too big, a sea change in opinion is underway. Indeed, the only people still arguing that these organizations can be managed in a way that generates sustainable value for shareholders and keeps taxpayers out of harm’s way tend to work for them.

What the Banks contribute to GDPGolem XIV
This article takes a short critical look at the figures the banks use in order to say how vitally important they are. As we all know it has been, throughout the bank debacle, important to the Banks that they be able to say how central they are to the economy of every nation. It forms the first line of defence in arguments over the bail outs.

A leaf being turnedBIS (pdf)
Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, to Occupy Economics, "Socially useful banking", London, 29 October 2012.

If Banks Can’t Overcharge You For Trading, How Can They Afford To Bring You More Overpriced IPOs?Dealbreaker

Do Fund Managers Manipulate Prices? Say it ain’t so!Turnkey Analyst

A Year After MF Global's Collapse, Brokerage Firms Feel Less Pressure for ChangeDealBook / NYT
The MF Global bankruptcy prompted federal authorities to immediately bear down on the brokerage firm and the broader futures trading industry.

Prudential regulation - challenges for the futureBIS (pdf)
Andrew Bailey, Executive Director of the Bank of England, at the University of Edinburgh Business School, Edinburgh, 4 October 2012.

The future of banking regulation in the UKBIS (pdf)
Andrew Bailey, Executive Director of the Bank of England, at the British Bankers' Association Annual Banking Conference, London, 17 October 2012.

Shadow Banking: A Review of the LiteratureN.Y. FED

Financial regulation in focus on U.S. presidential campaignThomson Reuters

‘Too Big to Fail’ Remains Very RealEconomix / NYT

The Future of Computer Based TradingMagic, Maths and Money
Finance is critical to society, as we have all found out recently.  We should be debating finance with the vigour and passion that we debate climate change, GMOs, nano-technology, energy and so on.  Without this debate we cannot establish the values upon which the evidence base, which informs the regulations, is built.  I feel that the Report misses making this point clearly, and so cannot really address the issue in hand.

Follow ‘MoreLiver’ on Twitter or Facebook